Motilal reiterates 'buy' on Axis Bank

MUMBAI: Motilal Oswal Securities has reiterated 'buy' on Axis Bank, as the stock trades at 2.4 times FY09E BV 15 times FY09E EPS and at 2 times FY10E BV and 12 times FY10E EPS.

Axis Bank has demonstrated its ability to grow at a strong pace across all parameters. Motilal is impressed particularly with its CASA growth (CAGR of 50% over FY04-08) and strong traction in fee income (CAGR of 56% over FY04-08) and clean asset quality.

Post Q2FY09 results, the brokerage has increased the estimates by 11 per cent for FY09 and by 4 per cent for FY10 to factor in higher fee income and higher provisions.

Motilal expects (i) earnings CAGR of 36 per cent over FY08-10E; (ii) RoE to improve to 18 per cent by FY1 and (iii) RoA to sustain at 1.2 per cent in two years.

Motilal estimates BV to be Rs 281 in FY09 and Rs 324 in FY10 respectively. The brokerage expects EPS to be Rs 45 in FY09 and Rs 55 in FY10.

Motilal are factoring in significantly higher NPA provisions-a rise of 100 per cent in FY09 and a further rise of 40 per cent in FY10. Motilal estimates also factor in a higher delinquency rate of 1.5 per cent in FY09 and 1.7 per cent in FY10 respectively v/s 1 per cent in FY08.

Q2FY09 results came in significantly higher v/s estimates. Net interest income was up 55 per cent YoY (v/s est of 41%). Profit after tax increased 77 per cent to Rs 400 crore (v/s est Rs 340 cr) on the back of strong loan book growth (54%), NII and fee income.

CASA grew 43 per cent YoY and 17 per cent QoQ. CASA ratio was stable QoQ at 40 per cent. Asset quality was strong (net NPA at 0.43%) with a shift in favor of safer asset classes.

Asset quality is robust-gross NPAs are at 0.91 per cnet (stable QoQ and YoY) and net NPAs at 0.43 per cent (down 4bp QoQ and 12bp YoY). The proportion of A and above rated large and mid-corporate loans increased from 78 per cent in Sep 07 and 81 per cent in Mar 08 to 84 per cent in Sep 08. Similarly, the proportion of SME loans in SME4-8 (lower quality buckets) rating has come down from 24 per cent in Sep 07 and 29 per cent in Mar 08 to 22 per cent in Sep08.

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